RBS 'has duty to consider legal action against Goldman Sachs'

Published:21:42Updated:22:07Sunday 18 April 2010

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ROYAL Bank of Scotland directors will be obliged to consider legal action against Goldman Sachs if the US Securities and Exchange Commission succeeds in its fraud case against the American banking giant, say lawyers.

The SEC claims that RBS is the biggest victim of the alleged $1 billion (651 million) fraud relating to mortgage investments that were sold as the US housing market faltered.

RBS paid out $841m (550m) on the toxic subprime mortgages, according to the US regulator.

Although Goldman rigorously denies the allegations that it misled investors and insurers about the type of mortgages involved, lawyers in the UK say the RBS board, including its chairman Sir Philip Hampton, would have a duty to shareholders to seriously consider recovering its losses through the courts.

Michael McKee, financial services regulatory partner at DLA Piper, said: "Usually, if it were established that there had been criminal activity or a breach of security rules in any given transaction, there would be an expectation that the banks which had been the victims of such activity would look very closely at their legal options." Nevertheless, RBS is expected to bide its time as the SEC pursues its case, which is likely to take several months or years.

Shares in Goldman crashed on Friday when the SEC announced it was charging the bank and one of its directors, Fabrice Tourre, with fraud.

Goldman said the SEC's charges were "completely unfounded in law and fact".

The row is expected to escalate this week when the bank is tipped to unveil bumper first-quarter profits of almost $4bn. It is also expected to dole out $5.5bn in pay and bonuses to staff.